6:30 P.M. and three more cars just pulled up to my place… on a Monday…

Have I just bought a McDonald’s franchise? Not quite. This is the start of what we call “tax season” in the used car business.

A time when tens of millions of Americans who live paycheck to paycheck get a nice four figure lump sum from Uncle Sam and his favorite sub-prime debt dealers.

This money will typically be gone within 72 hours. Cars, electronics, and (cough! cough!) indebted personal obligations will be re-distributed to impersonate economic growth.

None of this matters for me right now because my brand new customers, with tax refunds in hand, are looking at three older cars.

The respective ages of these low money down rides?

17.. a red 1997 Honda Civic EX with 130k miles.

18… a gold 1996 Nissan Sentra with 135k miles.

And 19, a white 1995 Pontiac Bonneville SSE with 160k miles.

Two year notes for three cars that are old enough to have been driven daily when I was young.

Should all this age scare me? No. Not at all. I’ve financed hundreds of teenage and twenty-something cars over the last several years, and with the average age of a vehicle in the United States slowly creeping towards the twelve year mark, I’m not even sweating it anymore.

So long as I find the right owners, these cars don’t break. At least not in a terminal sense.

The ones who should be sweating it are the manufacturers. Why? Because they overproduced at a torrid pace from the early-2000’s to late 08′, and now that many of these defunct brands and models are headed towards their middle-age, they’re getting depreciated to kingdom come.

Yet they still run fine. Even until recent times this longevity had not been the usual case.

Ten years ago the average old jalopy on the road was usually a rolling piece of junk that drank gas, smoked oil, and hung out with the bad boys. I saw these cars all days long at the auctions and sold tens of thousands of them as a ringman, auctioneer, and remarketing manager for an auto finance company. The wholesale auctions were full of em’ back then, and I still remember getting headaches from all the carbon monoxide and other deadly substances that permeated the air. When it came to older cars, there were far too few manufacturers of quality vehicles. Older Benzes, Toyotas and Hondas were able to handle the long haul. American trucks and gas guzzling body on frame land yachts were pretty good as well. Those were the sweet spots for those wanting car owners who couldn’t do it themselves. Everything else offered a lot more misses than hits.

Now, the average old car… is the family car. The extra car that rarely gets driven. Or even your own car.

It was more than likely designed at a time when lean manufacturing had already become predominant, OBDII diagnostics had become a universal standard, and fuel injection had become a given. Even the recent defunct brands. The Pontiacs, Oldsmobiles, and Mercurys of today are light years ahead of the malaise era inspired, quantity driven metal of yore that rightfully deserved to be recycled into Chinese washing machines.

Your current daily driver, old it may be, is still going to last you for a while. And when it does decide to spit out a part, chances are you can find a cheap replacement for it online or at an auto recycling center. The labor to replace it may no longer be cheap, and your older ride may not have the same tolerance for neglect and abuse than it did when new. But if you drive like everyone else on the road, chances are it’s going to last you well past 200,000 miles, or even 15+ years if you live in a non-rust climate.

We can go on about defunct brands and models that are now overpopulating the used car market thanks to the corporate accounting games of not too long ago. We can even venture forth to the less political causes of what will likely become a golden era for cheap transportation if you keep your eyes sharp on good product. This is in large part thanks to the research engineering advances of the last 15 years, and the amazing convergence of suppliers, standards and even platforms within our industry.

But there is one factor that seems to trump all the others in today’s used car market. Money.

In my world that is running a car dealership, the new car is now matching the eight year old used car when it comes to the monthly payment.

How? Here’s how.

It’s the difference between a two year note for an $8500 eight year old used car at 14%, and an eight year note on a $30,000 new car at 5.9%. The financial difference between those two cars, pre-tax, tag, and bogus add-on fees, is $408.11 a month for the used car, and $392.78 for the new car. You read that right. The monthly payment is now often less for the average new car than it is for the average used car. A lot of consumers who are already used to having a car payment don’t mind paying for a longer period if it means getting a newer vehicle.

Now that automakers and major banks are delving deeper into sub-prime loans, even deeper than they did back in late 2007, used cars are becoming increasingly unmarketable.

The millions of orphaned brands and models with little to no marketing cache are going to help this process advance far faster than you may realize. In fact, many of the largest used car retailers will no longer buy any orphaned brands because they sit at the lot for far longer periods of time than ever before. A lot of declining brands such as Volvo, Mitsubishi and Lincoln are also on that same walking plank of consumer obscurity that leads to an ocean’s worth of cheap inventory.

No overproduced, over-leased or unpopular used car can compete on a level playing field with a new car equivalent that has the better brand name on the front of it. That is unless you’re one one of those customers willing to pay cash one time for an older product.

If that cash customer is you, these next few years will offer a far better bang for the buck when it comes to buying used cars. Once the bad decisions of 2007 and 2009 are removed from the credit histories of consumers who had bad luck back in the day, you will see many of these customers ditch their old rides and buy whatever new car they can find which offers a lower payment, a nicer ride, and better cash flow. At least for right now.

I predict that a lot of these cars will contain technologies that will be far too expensive to fix and repair in the coming years. However, by then I’m sure that the manufacturers will be offering ultra-high mileage, aluminum bodied works of wonder with advanced CVT transmissions and software that will enable electric motors to become a worthy alternative to the internal combustion engine.

Meanwhile, someone out there will still be driving an old Honda Insight. New car smell be damned.

I’m not Steve but as a car dealer I will tell you what I’ve seen: the past 3 weeks @ the auction has been an absolute bloodbath, and this is normal for tax refund season. I began stocking up my two lots in late October (not without it’s own set of drawbacks) in anticipation. Cars that might have brought $1500 @ the auction in Oct were bringing $2300 this week, no joke, it is that significant. Over the previous summer I had noticed a slight drop-off from the “stupid high wholesale prices” that had become the norm over the past few years.

Some of the trash that sells at the auctions during this time of year is barely roadworthy, and others are nothing more than glorified parts cars.

However, tax season is also an anomaly.

The “stupids” come out (a.k.a. buyers who only show up to the auctions during this time of year) and you also get more members of the public trying to buy these cars at the public sales.

I just sent six vehicles to the auction this week. They will get a nice healthy premium. But a big part of that price premium will come from me selling under the name of a new car dealer. That’s another thing. Your run number and dealership name make a fantastic difference on your returns.

Once tax season is over the older portion of the used car market will be doomed. The finance market for the good older car is no longer there unless you’re willing to take on lower down payments, and far greater default risk than was the case only a few years ago.

The auctions this time of year never cease to amaze me, hence my annual pre-tax buying binges. My lots were literally busting @ the seams with inventory on Feb 1 & now I’m staring @ almost empty frontlines. Run numbers are everything & it’s certainly worth the $50-$100 per unit in payouts to run under a new car store. The Westlake’s, UAC’s, ect…have ushered in big changes in the bhph/sub-prime marketplace & the old business models no longer apply.

The article is substantive but meanders a bit and has some excess which can be trimmed. The main premise should probably consider (as followup article?) the pressure on new car production. If old cars aren’t going off the road, and people aren’t owning that many more of them on average, then it follows from conservation there are fewer cars into the system. There math should be interesting.

The loan numbers are bit odd, too. 8yr@6% vs 2yr@14%? That 6% must be massively subsidized, or 14% overpriced, or there’s expectation of gratuitous deflation.

The difference in the interest rate is the customer base. The person shopping for a used car with a tax refund check (because that’s the only time they’ll ever have a down payment) probably has manure-like credit and as such they pay a high rate of interest on a car note.

Increasingly the auto and finance companies are trying to find a way to sell this same customer base a new car, including by putting out ridiculously long loan rates to get that all-importnat monthly payment figure low and attractive. Near me a Toyota dealer is moving 2013 Camrys at 170 a month with a 72 months or more. They’re going right after those sub-prime buyers who would otherwise be on the used car lots.

Meanwhile used car prices are still stupidly high…which gives the base Camry blowout even more appeal.

If this continues there will be a collapse in used car prices. I think this will happen relatively soon, and it’s why I moved to get rid of my previous daily driver when I could still get top dollar for it.

> including by putting out ridiculously long loan rates to get that all-importnat monthly payment figure low and attractive.

Sure, but in that case the rate only *increases* due to expectation/risk of inflation and default for longer loans.

> Meanwhile used car prices are still stupidly high

But that’s also due to more reliable cars. A 3 year old car you expect to last another 12 *should* be more expensive relative to new than one expected to last 6. As cars last longer and longer, used naturally becomes more “expensive”. But reliability also leads to more cars (ie supply), which puts downward pressure on everything (ie incl new cars). Yet as used prices generally climb people also hold onto them as you should an relatively “appreciating” asset (manifest in this case by cutting depreciating, making that used car really cheap to own).

The implications of that is incredibly interesting for a car site (ie this one). That’s why I mentioned a math model of the market should be worthwhile.

It is; the Fed is allowing banks to borrow money at virtually 0% interest to keep the economy from imploding. If the banks or auto finance companies have access to money at less than 1% cost and lend at 6% to customers with OK or better credit it is almost a license to print money.

6% is a very high interest rate for someone with average or better credit. My credit union is offering 2.74% for up to 72 months. On the other end 14% is pretty low for a BHPH lot, most of them in my area are charging 18%.

Out of curiosity, I just looked at the Camax website. The main graphic at the moment is one of a young woman smiling in front of a shiny Pontiac G6, under the headline “Make the most of you tax refund.” The brunette in question is much more appealing than the choice of orphaned car.

While part of me salivates at being able to scoop up a good used car to drive and not care about if anything happens to it for peanuts, part of me realizes these are short term flings.
I, as I suspect many of my compatriots here, are generally not too happy driving around in an appliance. I have to have something moderately irresponsible, or as I like to call them, interesting. These aren’t the kinds of cars you can get away with changing the oil every 15,000 miles. And if a light is on on the dash, you actually fix whatever’s wrong.
As much as I yearn to take that front spot at the grocery store with my 15 year old Oldsmobile, I just wouldn’t enjoy it as much as the long walk admiring my car sitting at the back of the lot all alone.

This is going to depend where you live. In Australia I owned a 60’s Alfa Coupe, I just did. Over here (Toronto) i started out fussy with my car but seriously, the roads are a swiss cheesed mess, the weather atrocious for much of the year, everyone drives some shade of silver/grey/black and once you have wife and kids they treat the car like shite anyway.

I gave the Saab to the Mrs and i drive a beater to and from work, it’s a 6km one way (4 miles) in pretty busy traffic, really what am i gonna get a from a shiny new A4 or whatever?

But don’t you somewhat envy the people who do that and manage to get away with it for years?
If my car went a hair over the 3,700 interval I have set it’s liable to eat its turbo and grenade the engine.
But am I willing to give up the driving and oddball ownership experience for the sake of trouble-free miles? Nope.

LOL! No, I don’t envy them so much as I hate the manufacturer for recommending an unrealistic maintenance interval.

Those vehicles will outlast their warranties, and then the owner (1st, 2nd, 3rd…) will be stuck with paying a huge engine bill. Just because some unenlightened souls at the mothership decided to make their Total Cost to Own numbers more competitive.

Lets see my last 4 or so beaters have had oil changes done at roughly 25,000 mile intervals. (some times more) only one suffered an engine related fate valve spring failure on a toyota 22r at 215,000 miles. This was always with the cheapest oil and filter to be found. YMMV

In Europe, they drive far more miles on their oil than we do in this country without any issues.

If you are using synthetic oil, and doing all or mostly highway driving, 15K miles on the oil is no big deal. It’s easy to do your own own sampling, sending it in for analysis, in order to determine what the maximum change interval is for your own driving cycle. Some on the TDIclub forum have found that they can get 25K miles on an oil change (yes, even on a diesel) without any issues.

On the fear of hijacking this thread into the netherworld that is the motor oil debate, I will respectfully let you enjoy what is in essence a terrible piece of advice.

Most folks do not buy top quality synthetics and ride their cars on the highway for eons on end. This is one reason why several manufacturers have now backed off their claims as to oil change intervals.

You are saying that if one actually follows the manufacturers original guidelines then your car will be fine. However, since many people don’t OEMs are now lowering their oil change intervals (OCIs) to match the lowest common denominator of vehicle owner. That I could possibly buy into.

I have a 2006 BMW 330i (e90) and have the oil changed every 18-20k miles according to the Condition Based Service (CBS) monitor. We are currently at 130k miles and I will NEVER sell the car and I am saving every oil change receipt to document what happens either way.

I read your link to e90post.com; there is a lot of speculation as to why BMW changed their OCI recommendation. (Including on how it benefits BMW by actually LOWERING the number of oil changes.)Oil analysis reports were posted by one owner and Blackstone actually recommended he EXTEND his OCI to 10k miles. Has anyone ever posted an analysis by Blackstone stating that the 15k+ oil change left them with sub-standard oil? I’ve never seen it referenced… In fact that is the fatal flaw of the conspiracy theorists when it comes to OCIs… the complete lack of evidence that there is any detriment being done to the engines!

@Dave, yes there is fault in that reasoning. The first number in the oil’s rating determins how well it flows when cold. Yes there is a slight range to get each rating but in general a conventional 5-xx will flow very similarly to a 5-xx synthetic or synthetic blend. If you see temps that low you need to be running a 0-xx oil. Of course if you want that second number to be 30 you are likely going to have to go with a synthetic and most 5-20s are at least synthetic blend.

For BMW lowering their recommendation on 2014 and up – those are nearly all turbo cars. They instituted a one-year interval as on override to the CBS system a couple years ago for all the cars too.

But having said all that, I have had the oil analysis done on my ’11 non-turbo 328i, and for my usage, the full 18K original OCI would be just fine on BMWs specified full-synthetic oil. But I drive the car almost exclusively on the highway, and that particular car holds darned near 8 liters of oil.

So as with most things, the truth is somewhere in the middle. I think 10K or 1 year on synthetic is a perfectly acceptable OCI for the majority of cars. 5K seems too soon on a modern car unless you are driving mostly in stop and go traffic.

One thing that always amazes me when talking with Americans about cars is that they just assume a loan is normal. This is financial suicide of the highest order unless you can re-invest that money at a higher interest rate. If you can afford the loan you would have saved the cash in the first place, what idiots are borrowing at 14% to buy a used car? That’s absurd.

Back on topic, the article is correct and i cannot fathom how buying new makes any sense when accounting for the out the door price (taxes, delivery fees, blah, blah blah). Three years ago i was searching for a family car as my wife’s stomach was growing at an alarming rate. I finished up with a 2008 9-3 wagon, the base 2T.

Did my due diligence and saw that this vehicle had steadily climbed the reliability rankings to be at the very least in the upper half, for $USD17,000 I drove away in a two year old car with 22,000 miles from a reputable dealer, power everything, leather, solid safety record and excellent power. Is it perfect? Well no it’s not or they would not have gone tits up, handling is a joke and ride quality is poor (how did they manage that??) but just this past weekend i drove home with a 39×39 ottoman, an 8×10 carpet and a huge light fixture including wife and toddler. Amazing. So far (crossing fingers) I have replaced one washer nozzle in terms of out repairs.

Net cost to import back to Canada saw me at $20K, at that price point my options new included a Corolla or Civic sedan, i felt it a no brainer.

Today these cars are a steal, as are the previous shape Lincolns IMHO.

You bought a 3 year old orphan brand car for more money than most Americans pay a new Camry LE; to most people that is not a great deal. Glad you like your Saab but most car buyers would pass on it.

Borrowing money to purchase a car is not “suicide of the highest order” but rather a strategy to acquire a needed tool that most of us need to live a modern life. Most of us make a calculation of the cost of the loan and what we gain from it vs. opportunities foresworn if we decide not to borrow the money. Borrowing money for a car can provide access to high quality personal transportation, just as borrowing money for a home allows one to purchase a nicer residence than you could acquire by paying cash. The tradeoff is debt, but if managed wisely provides more benefits than costs.

Depends where you live, I am within 10 miles of four Saab indy guys so the orphan thing just does not bother me.

Camry doesn’t come in wagon form.

I don’t disagree that a loan makes sense in some instances but i come back to the basic rule that at a used car purchase price (unlike the massive sum needed for a house)if you can afford the payment you’d have saved the cash by now. To borrow money for a depreciating asset that is going to need ongoing care is nuts unless you can invest said cash and make a better return than the rate being charged, but at 14% that is unlikely.

If you don’t have the cash to start with and you need a car now you borrow the money. In a perfect world we would all save for the things we want and buy them with cash; however, most people don’t live in that world today.

For example, when I graduated from college I had a very good job offer that required a presentable car that could reliably run 40k miles a year. No car, no job. Not a tough decision: I borrowed the money to buy a nice Honda. The income I was able to generate far exceeded the cost of the car payments. Would it have been wiser to pass on the job and the higher income it offered? No.

If a single mom living paycheck to paycheck needs a simple econobox so she can commute to a job, should she stay home and save up her non-existent income, or borrow money to buy a car that allows her to commute to a job? Usually she is better off borrowing the money.

Cars are not just a depreciating asset, they are an appliance that makes other activities possible. Viewed in that context, financing them makes sense.

Financing out of need is one thing, but I doubt most financing is done out of need. Most people I see who use financing buy at the top of their payment ability, then replace the vehicle (and payments) when it is over, no matter what the need situation is.

The bus is entirely dependent on where you live. I take public transit for work, school, and most errands. Transfers are no big deal. I’ve got a perfectly decent old car in the garage, and could swing the monthly payment on a brand new one if I chose to. My brother makes well into six figures, with a similar balance in his bank account, and hasn’t owned a car in years. He did have a brand new 350Z for a year or two and got rid of it because he found it wasn’t worth the hassle of driving it in a large city.

I don’t mean to belittle people who can’t afford a car. But few people buy cars with cash, and make a reasonable choice that a bit of debt is worth the convenience of getting somewhere in a reasonable amount time (and in relative quiet, safety, and comfort).

I do live in a big city that has a decent bus system, but that does no one any good on the weekend when a lot of routes aren’t running. And I did rely on that system for a few months when I first moved here. But when a simple errand to Target ends up taking an extra 90 minutes because of the bus system, I decided I needed to get my own wheels again.

“Borrowing money to purchase a car is not “suicide of the highest order” but rather a strategy to acquire a needed tool that most of us need to live a modern life.”

The tool you need to live life looks like keeping a Corolla until it dies.

Easy borrowing lets people buy their wants instead of their needs. Which is why the average car looks nothing like a Corolla, is paid for with a six year loan, and is traded in before it’s even broken in. Also why its average buyer spends most of their life a few paychecks away from repossession and foreclosure.

The words “consumer loan” and “strategy” usually don’t belong the same sentence. Unless said car is indeed a Corolla-looking appliance that is purely selected on the basis of providing transportation at the minimum cost over a certain number of years, it is no longer a tool.

You’re selecting very specific circumstances, I would suggest these are the exceptions and most folks borrow ‘cos they are hopeless savers then find themselves with an atrocious credit record because they cannot afford the payments. Cue housing collapse and general economic massacre for ten years.

The fundamentals remain the same, don’t borrow for anything other than a house unless you can re-invest that cash or just HAVE to have it now to help source more cash (like getting to a job).

Actually I think you are selecting very specific circumstances. You chose a specific product from an orphan brand that (as nice as it is) is not the typical car buyers choice, which is why Saab went TU and the SportCombi never really sold well anyway. Don’t get me wrong, I like that car, its great looking, fun to drive, etc. But the “typical” buyer is going to run from it like crazy: an orphan brand European wagon with extremely limited dealer and aftermarket support, with a turbo engine and lots of expensive electrical parts. And you spent basically the same amount of money one could get a brand new zero mile Honda or Toyota at 0.9% financing. I think people forget that 80-90% of the new car buyers out there are not into cars, they simply want something that’s cute and easy to buy. Shopping for used cars sucks and shopping for new cars is easy and fun. Steve is right, if the payment is close or even less than almost everyone is going to pick the new car if they can. As for saving money and paying cash… with today’s super low interest rates, why?? Even if I had $20-30k on hand I wouldn’t pay that cash for a car. It just makes more sense to keep that money on hand for anything else.

I respectfully disagree. Finding a dependable, well-maintained used car is a challenge, an adventure and a bit of a gamble. Add in finding a good value for your money and the game is on! Craigslist is a great place to get started, and you meet interesting people on the way. If you are halfway talented with tools, maintenance and repairs are not a problem. This applies to paying cash, buying from an individual, not a BHPH lot or Carmax.
Negotiating with a car salesman and the arm-twisters at a new car dealership, paying interest and principal for years and years, along with comprehensive insurance while watching the value of your car plummet isn’t my idea of fun!

My last car purchases: Geo Metro convertible, $700. Needed a top and a few cosmetics, runs like a top. Plan to keep it for the long term. Honda Accord, $1500, needed a power window switch, tires and brake rotors. It still ran perfectly when it got rear-ended after 3 years of trouble-free driving, and ended up totaled. Replaced with a Volvo V70 for $2400, which needed a hubcap and was due for an oil change (and cost literally 7% of its price when new!) The insurance settlement for the Honda paid for the Volvo.
Found an Accord on Craigslist for a friend for $1200, which has been a dependable driver for more than five years, requiring just basic maintenance.
So, you can have the pleasure of buying new, from a dealer, if that’s what makes you happy. I’ll buy depreciated, for 10-15% of the new price, and put 50K or 100K or more on my car. There will be no monthly payments, and liability insurance is dirt cheap.

@RHD – But obviously you are a car guy who appreciates the challenge of bargain shopping used cars (and sounds like you did get some bargains!).

But most people simply won’t be able to put that kind of effort into used car shopping, it takes a tremendous amount of time, I rarely have time to do it for myself and know what to look for. The average car buyer has no idea what to look for.

I bought a leftover ’08 9-3SC in ’09 for $23K brand new. Great car, sold it for $18K two years later when it looked like the end was near for Saab. Late 9-3s are very solid cars. I sold it to a friend’s daughter, she still has it, nothing has gone wrong with it at all.

I think one thing that gets missed with the whole new car vs. used car debate. When you buy a new car you are paying a premium for the use of the VERY BEST years of a cars life. In theory they should be the most hassle free, and you get exactly what you want (though I compromised on that $13K off Saab – I had to add the seat heat myself). The trick is to buy new, maintain the car exceedingly well, and keep the thing so long that depreciation is largely irrelevant.

But I also tend to agree with the person further along who sees cars as a service, just like the water bill. If I didn’t care about cars so much, I could see the value in just leasing something boring on the cheap. You will never own it, but you will never have any expenses but gas and insurance either, assuming you get a car with free maintenance. Heck you can lease a Corolla around here for the price of the phone bill on a smartphone!

I haven’t spent much time in the 9-3 but Saab was always solid and well equipped. Plus that 9-3 Sportcombi is about the best looking on the road in Aero trim. The deals are out there but for orphan brands like Saab during the bankrptcy as I picked up a few 9-5’s. Just those wagons are big enough to swallow and haul but are 3,700-3,800 lbs in a great handling vehicle will require a combination of new prings/shocks, rear sway bar, and some summer rubber.

Check BCB for a couple hundred dollar ecu only tune on premium fuel to make it come alive. The Saab Ecotec 2.0T is not up to 2006 Ecotec 2.0T standards missing out on direct injection(GM the only one without problems?) And variable valve timing.

Every time I read someone talking about the “Suicide” of a car loan, it blows one of the very small, important capillaries in the front of my brain. Doubly so when the author is talking about “Americans today.”

What every. single. person. fails to consider is that to many people, $350 a month for a car isn’t paying off a loan on a depreciating asset – it’s paying a service fee no different from your mobile or water or power bill. Guess what? If you bought a big-ass generator, and a ton of fuel, or some solar panels, you would be exchanging a monthly fee for a large initial investment. There’s a reason some of the new car-sharing services are seeing a large increase in business – its a much simpler way to commoditize the activity of individual transportation.

While the 8-year note looks like indentured servitude to many people old enough to remember voting for the first Bush, people that grew up under the 2nd one simply don’t see a car as an asset – it’s an appliance which serves a specific purpose, which wears out eventually and needs to be replaced, and if you get any value out of it, great! It’s like being able to trade in or sell your phone every 18 mos.

But the worst arrogance is yet to come:

“If you can afford the loan you would have saved the cash in the first place, what idiots are borrowing at 14% to buy a used car?”

Even in Not-American-Canada, “Almost a third of Canadian households report never or almost never having any money left to save after paying their bills” – http://business.financialpost.com/2013/05/22/canadians-spending-spree-is-playing-havoc-with-their-savings/

TL;DR – You should consider yourself fortunate that you don’t need to look at the loans that are being offered to people less financially stable – although I promise you there are holes somewhere in your fiscal ideology, and it’s dangerous to throw stones – and making blanket statements about the way other people can and should budget and spend is a fast road to a sad and lonely old age (but at least you’ll have money!)

To me the spread of commercial/personal debt is the same as when we left the gold standard. Debt allows more to share in commerce by buying cars, houses, second houses, durable goods and so on. Because of this employment improves. Without getting lost in the weeds, if we were a full payment society, most would be living in a van by the river.

But if they have no money left after paying their bills HOW will they afford a car payment, THAT is my point that seems to be flying over the head of so many here. If you can afford $350 a month to get a car you WOULD have saved that by now.

So it’s a tad chicken and egg, so let’s start with the egg (or is it chicken??) and go back to the start of the circle, basically when said person buys their first car. If they ingrained in a debt for everything society they borrow money at 14% to buy their first car (I see numpty uni students on the Saab forum do this all the time) and never get out of the swing, it’s the housing rent trap, once you start renting you can’t save the deposit.

Hate to say it, but the older i get the more I hate monthly payments of any kind. If I could make the Math work (and I think it may in the future) I would throw in a micro cogen plant next to the house with a solar array to do the primary power. I’m even starting to become torn on the mortgage issue and may just keep fixing up my house while I pay it off unless I can somehow find the cash for a new house.

Cars are a money hole for the vast majority of tool challenged North Americans who can not think their way out of mainstream transportation modes.
If you are handy with a wrench, those most desirable vehicles from a few years ago that have a few flaws can make for very, very, cheap daily drivers.

Little manufactured today interests me, and all of it strangely enough is from ChryCo, where as 10 years ago I wouldn’t have considered anything they offer.

Cost of new cars has skyrocketed and features that I want have dwindled, I spent time as a kid keeping 80s and 90s GM running and did fine, as an adult I’ll be keeping 90s and 00s AMG/GM on the road for the foreseeable future. I may be able to afford that 70k truck but it doesn’t offer what it predecessors had that made me want to have it.

Of course I don’t only blame manufacturers for high product costs, My 48k in 03 is worth 62k today thanks to inflation. A 59k brand new Humvee C-series being made now by AM general, sounds like my automobile future.

I hope this happens. We needed a new vehicle back in the fall, there was nothing we loved on the market new, and everything we liked either new or used seemed crazy stupid expensive. So we leased an unloved model that we liked OK but don’t plan on keeping for 10 years like our old car hoping things get a bit more sane in a few years.

My company is asking me to relocate and I’m seeing the same thing in housing. With borrowed money cheap and easily available things get more expensive. When (not if) the wizards of wall street blow stuff up again and you actually need to have money prices will come back to earth.

Over here in the EU, it’s easier than ever to buy dirt cheap second hand cars. The dutch like tiny cheap cars because of taxes. In this country, most people don’t even need cars because of public transport. As a simple result, nicer cars can be had cheap, and I tend to buy 10 y/o ones with full options. Just add maintenance and put up with the taxes and gas cost and you’re fine. Over here.

This was the weirdest experience for me when I bought my car from the dealer – the number on the invoice sticker with the total cost is VEEERYY small, but the number next to it with 60 mos payments is VEEERRRYY large :p

I think a significant number of shoppers (regardless of financial standing) are just looking to spend $XXX a month on a car – it’s no different than your cell phone plan nowadays.

I am a huge Tmobile fan, have been with them for years, my daughter works for them too. But make sure you really know what you are getting into. Without the subsidized phone, you have to buy your phone outright. This is fine if you have a phone already or don’t care about getting a new fancy phone, you can get buy on the cheap with a refurb or one off eBay. But if your family is like mine, everyone wants the newest fanciest phones, and they make the financing so easy and cheap (o%) that its tempting to just add the phone on, which makes the total bill pretty much the same as all the other carriers.

Now the real trick is this new promotion they have where they will pay your other carrier’s cancellation fees. My daughter says that you can sign up for an AT&T contract and get the free or significantly discounted phone, like the iPhone for $99. Then immediately go to TMobile and transfer your new AT&T number to them and they will pay the cancellation fee. You have to buy a phone, but you can get a cheapo phone for like $60 from them. And you have to “trade in” your old phone but they don’t care which old phone, you can just find some broken phone in a drawer at home and trade that one in. In the end you get a brand new $600 iPhone for $99+$60 and no cancellation fee, and you can sell that brand new cheap phone on Craigslist too.

The announced this deal literally weeks after everyone in my family had just gotten a brand new phone.

mnm, I think the difference with T-mobile now is that your monthly price will drop once the phone is considered to be paid off. If you buy a $99 subsidized phone with a plan from Verizon, you’ll pay $100 per month forever. The same $99 phone from T-Mobile, you pay $100 until the phone is paid off, then $70 thereafter. So you’re getting the newest phone, and just paying it off in installments. I think that’s how it works. And I believe AT&T is copying the T-Mobile plan now.

Anyone who realizes that life extends past the next few months. Given the same monthly payment and the choice between a used car that’s paid off in a year or two that can be subsequently driven payment-free for a few years, and a new one which will take 6 or more to pay off, at which point it’ll probably be traded in for a new payment, which option leaves you with more money in your pocket?

She just paid off her car (bought used three years ago for $13k), and it’s worth right at $8500. She can get a new one of the same model for $25-30K for (Steve’s right) THE SAME MONTHLY PAYMENT she was paying for the one she just paid off. (I found Steve’s sample interest raters VERY high, though– my insurance company/bank is offering me 1.89 for a new car and 4.5 for anything older than a 2013 model.)

So I’m trying to convince her that she doesn’t need a new car by showing her how bad the competition for her $8500 car is on the used market (which is true; hers has only 83k miles and is in much better shape, but not worth any significant amount more) AND how well her $8500 car stacks up to the new $30k one.

I actually don’t care if she buys one or not, but it makes no economic sense. There are plenty of legitimate non-economic reasons to buy a new car, but she wants me to find the economic reason. There is none, other than the interest rate.

Tangential to the main point of this post, but we really need a way to spread out the EITC payments over time. The lump sum at tax time just leads to this kind of splurge spending that artificially affects pricing. Ever since reading Lang’s columns I’ve dreaded the thought that I might be forced to replace a car around this time.

I think the EITC is excellent policy, but spreading it out would cause more problems than it solves. Even a modest increase in income sometime during the year (new job, minor inheritance, hit the trifecta, etc.) could cause a significant and unexpected tax liability come filing season.

My first “job”, right out of high school (I had the unfortunate delay/ couple of years off between high school and college) was working as a porter at a large, buy here-pay here used car dealership. In other words, I was the lot boy, and serviced quite a few of these mundane/obscure branded cars myself. They weren’t all bad- but most of them- yes, were. Although, it was fun slapping dealer plates on any vehicle I wanted and driving the crap out of them for any amount of time that I had wanted.

Even then, ten years ago, it was amazing to see the crap cars being financed for ridiculous interest rates and astronomical prices.

For example: if one could look past the baloons and streamers, there would be a big flourescent number on the windshield, called “the down payment”.

Only $2,299 for that 95 Dodge Ram. Yup, you read right: only $1,995 for that 96 Taurus.

The gentleman who owns the lot is quite the businessman. His formula… genius.

Turns out the down payment on the windsheild was what he paid for the car at auction. Any additional monies, such as finance charges, et cetera: pure profit.

The plot thickens: the gentleman who purchased these vehicles from auction was completely color blind. That was always interesting to me. All he sees is black, gray, and white? He doesn’t know the true color of the cars he is purchasing? Lol.

The lot remains open to this day. Same ownership. And the cars? Every bit as abused, neglected, and overpriced as ever.

I was in the same position in the same time frame as you (although I worked more at the auction than on the lot) and my owner did the exact same thing with s*it cars. I believe this was/is the basic principle in buy here pay here, the initial payment pays for the car so when/if it is invariably destroyed the buyer is still on the hook for the note and the car is if possible retrieved and sold for cheap/scrap.

I wouldn’t say that per se Steve, the business has changed so much since then.

I’m going back a bit the last one I remember Bob (owner) doing in spring 06 was an ’89 Deville 4.5/101K (white/grey two tone, gorgeous) I picked up from the BAA Thur As-Is sale which he bought online. I could hear the fuel pump whining on the drive back but other than that it seemed like a half decent buy for $1200. I’m not sure what (if any) reconditioning money what put in it beyond a wash and vacuum but I remember it moved quickly. PA welfare paid/pays up to $2000 for their “qualified customers” to purchase used cars, and Bob priced it at I think $2999 (maybe $3495?) and sold it to a widow for this price or close to it, the customer putting maybe $300 down in addition to the welfare. So even after fees and costs the car was paid for and he probably made a quick $700 or $800 and in addition would receive the rest in biweekly (sometimes monthly) payments @ 18%. I’m not sure what happened to this car as he got sick in summer of 06, put the lot on hold, and died that winter.

Truthfully although this sale sounded like easy money Bob in his slowing dementia (in 05-06) bought ALOT of junk he got burned on (esp by wholesalers who picked up on the condition), it got to the point where a mid to late 80s car was “new” to him and why would anyone not buy an 87 Buick or 86 Chrysler? His wife and son wrestled control from him but he would still hit up the As-Is sale on Thursdays when he could remember it was Thursday. Somewhat sad but this was a man with local mob ties who went through three wives and drank his whole life.

Years ago, I finally gave up on my old practice of writing a check and paying for a car in full at the time of purchase. Mainly because, when I’m dedicated to keeping a cash reserve of $30-40k in the bank just in case of sudden unemployment coupled with inability to find another job (I’m 63, and although competent with a good work record, am essentially unemployable in the current market looking for a full-time job). Buying a car flat out would gut too much of that reserve in one swoop, and its difficult enough to replace the spent money as is.

The problem now is that my new standard for car payments is three years, max. Which would give me a year or two of paid-off ownership before the urge to get something else rises. Sorry, but I’ll never be the fiscally-frugal-drive-it-’til-it-drops type – the thought of living with a car ten years past the boredom threshold sets my teeth on edge. I don’t have that much longer to live, please God don’t make me keep the same boring old car just because its frugal.

Which means, new cars are pretty much a dead issue to me. As I’m not willing to do seven year payments (hell, I’ve never kept a car for seven years unless it had antique plates), I’m pretty much locked in to the idea of a 3-4 year old car on a three year note. Fortunately, with a healthy home equity balance in case I don’t like the interest rate the seller is financing.

I miss being able to afford a new car. Yeah, I’m the kid of a car dealer and grew up being used to new cars. Every year. Those were the good days.

There’s nothing wrong with not wanting the same car so knock yourself out but as i tell the mrs (she wants a new CUV), on a 3 year loan for anything nicer than say a Toyota (let’s say a Volvo or Acura or whatnot) and you’re out some $850 a month over the three years. That’s up here anyway.

“… in case of sudden unemployment coupled with inability to find another job (I’m 63, and although competent with a good work record, am essentially unemployable in the current market looking for a full-time job).”

I’m in the same boat, same age – although you’re almost a year older. My 2012 Impala is most likely my last new car because of impending fixed income at the max 3 years hence from now if I wait that long at full-time work. I shudder at Wifey’s 2002 CR-V imploding, but I don’t lose sleep over it.

Unlike you, we keep our cars much longer due to other obligations, although I dream at times of replacing cars every 2 years or so.

Oh well – if my Impala implodes, I can buy one of Geozinger’s old Cavaliers!

I’m fortunate in that I’m completely out of debt, have two other cars that are paid for (my Ranger probably a life long keeper, and my Solstice which is my toy car), so I can afford the luxury of swapping cars at somewhat quicker intervals. What I’m unwilling to do is cut into my large (to some, er, most people’s standards) cash nest egg which I keep in case of emergencies. Deep down in the core of my psyche is a screaming fear of ever being broke.

@Syke – I am finding myself with the same feelings as you. This idea of keeping my cars until they die is starting to bore me already (although I too have a couple of cars in the fleet that are not going to go away until they die so I always have a driver).

So why not lease? I don’t mean just roll in and lease whatever floats your boat that moment, but shop the lease deals and specials and pick from those. If you KNOW your going to get tired of a car (and a payment) after 3 yrs it seems like the perfect solution. Nothing out of pocket, less monthly payment than buying, and no muss no fuss after the 35th check is sent. For example, last year they were leasing Challenger RTs for under $300/mo, you can’t buy a used one for even double that with 3yr financing.

Because up here at least, the leases mean you pay some ungodly net some at the end of 36 months and you own NOTHING. You’re forever paying $300 and I cannot find a single vehicle for sale at $300 a month and I mean the real cost not this north american business of including just the base cost in the price so it looks low (so add delivery, dealer fees, taxes, levies, money down etc).

I would LOVE to lease but i cannot make the math work. Our Accent has set us back $161 month net, all in including repairs, we bought it a year old with 15,000 miles. At the time the monthly payment was $345 and it’s still worth maybe $2500 so that $161 is lower if I were to sell it.

I found one! An absolute stripper Kia Ria, 5 speed, bare bones. $296 a month all in. Net cost over three years is $11K, the drive away cash price is $13.5K ……. with leasing you own nothing. Still makes no sense.

Where in the world are you anyway?? It isn’t even hard to find subsidized lease deals for under $300/mo, and yes, ALL IN as you keep harping on. I have a 2013 Civic in my garage that was a sign and drive deal, I paid literally nothing and drove the car home, didn’t have to make a payment until the “second” lease payment, there will be 35 payments all together, my cost including the taxes is $230/mo. 230×35=$8050. Buyout at the end of the lease is $11,700, there is no disposition fee with Hondas. My mother-in-law just bought the exact same car for $18700 out the door but that was quite a deal thanks to the discounts on the outgoing 2013 models now that the 2014s are coming in, I got mine when they were about a grand more. So with my lease I will almost break even should I decide to keep the car. You can get a Civic lease even cheaper now, just about 210/mo so I should have waited.

Kia’s are notoriously poor cars to lease, because they have terrible resale values. And the lease deals are better on more expensive cars when they are subsidized. A BMW 3-series can be leased for around $400-450 with nothing down. Buying it would cost you around $600+/mo. You can get a Honda Accord for 250/mo with zero down, to buy it even with the special financing would cost over $400/mo. Thats a significant savings.

And as I said in the very beginning, this only makes sense for people who don’t plan to keep the car for more than 3 yrs, have other cars to drive, and are not pinching the pennies trying to get the cheapest car possible.

I tell my American relatives the same thing, and they can never believe it. $700 a month will get you a 5-Series in the USA. You can lease a 320i for us much as a Mazda3 costs us. What part of the city are you in? I live right near City Hall.

I hear from my Canadian friends how cars are much more expensive there, so that doesn’t surprise me. Although they also claim that salaries are better there too, so I don’t know.

What is surprising though is that you said the lease on the base Kia Rio was $296, which is higher than the US lease, but the drive out cash price special was $13500, which is about the same as it would be here. How does that work??

Feel free to go to my Facebook page. You should see a video of it there. I will be cleaning it up a bit since it’s been sitting a while.

One barrier I am having is getting it outfitted right. Long story short, I don’t have a ton of connections in the aftermarket world and tax season is not helping me figure it all out. Also, there is a poster here who is apparently affiliated with Dragoncon. But as of now, I haven’t heard back although I did pass on my information via Derek.

After tax season maybe a body shop somewhere near Atlanta could be found to at least paint the thing and put it on Ebay. I think the idea has merit but it requires cooperation on the part of several. I have a mom and pop body shop I deal with but they are in Elizabeth PA and I doubt have the resources to donate.

If none of that pans out Steve set up a paypal account to raise money to paint and raffle the thing and ask Jack to post it. I’ll kick in money toward such an effort.

I wouldn’t limit the rosy near term prospects to cash buyers. My CU is offering used car loans on up to 10 year old cars at 2.99 for 60 months and and 3.49 for 72 months. It will be good times for those with good credit as well as cash buyers.

Not the last time I purchased used. And at the .9 percent I got on new plus the cash on the hood why not finance. It would cost me more to make that much money liquid. I’ll use someone else’s cash while mine works for what is, as has been mentioned, a service basically.

After loans on two new cars over the years in my 20’s that were financed with a bank, could not stand being indebted to the bank for a car. Therefore, only paid cash since then. If not enough cash, no car new or used. It is an incentive to work toward something desired.

Very, very easy to do with cars, not so easy with a house.

I recommend never, never borrowing money or leasing to obtain a car. This is terrific advice that few will folloiw. Sorry Steve. In my opinion, only ego, not transportation needs are met by borrowing or leasing. Very expensive ego gratification for the most part.

I disagree. Doing a three year note on something basic is usually financially wiser than buying a $3,000 beater and then dealing with spending the money to set it right, only to have a near-worthless car in a couple of years anyway. I’ve done it a few times in cash, and if you have decent credit you’re oftentimes better off spending a bit more up front to get a car in better condition, even if it means spending $1,000 or so on interest. The improved driving experience with the newer car is icing on the cake.

If you’ve got the money in hand to buy cash new, then I can see where you’re coming from, but the number of people with even $10-15k in hand to buy a new car is probably fairly limited.

I think you’re right to a point, but if your “new” cheap car doesn’t come in configuration you want (i.e. manual, low beltline etc) or if your driving needs are more limited than the avg person (i.e. <5K a year to work and back), new may not always be the best solution.

I agree. For the last three years I’ve been driving a car which I bought at 12 years old, which fits both my finances and low annual mileage while also being fun. I see it as being a financially viable choice for me for at least a few more years, but it doesn’t see winter, has a cheap and plentiful parts aftermarket, and I’m not reliant on it to get to work (availability of public transit), so the possibility of it being off the road for a DIY repair once in awhile is a risk I can handle. Clearly, my situation isn’t typical.

However, my point was that it’s often worthwhile to spend more to get a car in better condition within whatever framework your car needs are, because it’ll result in a lower total cost of ownership even if you have to pay some loan interest in order to be able to afford the higher initial cost. Avoiding debt is important, but it’s not the most important thing.

I’d say that with some cars, that’s definitely true, especially with your Range Rover example. On the other hand, I’ve been driving a ’99 Miata for the past three years, and it’s been well within my means, even if it had lost all of its remaining value in those three years, which it hasn’t by a long shot. Up here in Canada, a new one is a $30,000+ car (base model), and paying for that, even as a lease, would’ve put a serious crunch on my finances.

If you could estimate an accurate amount of depreciation and buy say something solid like a Lex, 4.9% doesn’t sound very bad for the cost of entry.

Bankrate did the math: 30K/84mo @ 4.9% is $422.61. 2yo Lex ES350s are usually worth 27s. Unless you jack up the miles I can’t imagine they would be worth less than 20K by year five (that’s IF you think $422 for a car not named Ferrari is worth it).

Additional: Another value buy is the Lincoln MKZ V6 which Ford dealers in these parts will put out around $20K *retail*. Sure it will keep sinking until 5yo 10-12K mark, but I think 20Kish for a V6 semi luxurious car isn’t too shabby in this economic climate.

When I bought my Solstice, it was 3.99% on a four year note. Which I paid off within a year. If I finance, I’ll set up for the minimum payment I can deal with if times get rough, then double and triple each month because I can’t stand being in debt.

Of course, you’re credit rating has something to do with it. Depending on the credit service, I’m high 700’s or low 800’s, so I expect a decent rate.

At the moment, I’ve got a home equity line available at 3.75% for anything. That’s the highest I’ll deal with.

I was able to finance an 8 year old car about 6 months ago for 72 months at 7%. I laughed when they told me a lender would carry that loan. 72 months? 8 year old car? Whatever. It’s almost paid off and I’ll only be a year into the loan.

I’d never buy a used Nissan with the CVT, even though my family loves my dad’s Rogue; I’ve read many bad things about the CVTs on older Nissans. My parents were appalled when the TCM had to be replaced in September, with only 66K on the odometer.

Interesting article. One correction, their 4 figure “refund” (often a “refundable credit”) isnt coming from Uncle Sam, its coming from me and people like me. the ~50% or so who pay income tax. You can add the Chinese as a funding source too, but we are supposed to pay them back. With devalued dollars, of course…..

I need to get in sync with the market somehow. I sold a Mazda Protege in ’08 only a few months before things got really bad, and used car prices skyrocketed. I think in ’10 it was still worth close to what I sold it for, assuming the new owner accumulated maybe 25k miles. Fail.

Now I am more interested in new cars than what’s in the used market (especially with things like the 2015 GTI, Mustang, and WRX on the horizon), yet I’m hearing of an imminent market collapse with used cars. Sounds like I either need to make a move soon, or keep my current ride until used cars go through a depression and then trend upward again. My car would probably be worthless by then regardless of what the overall market looks like. I don’t think I could stay the course that long anyway. My attention span is about four years at most. Sigh.

Sometimes I really am envious of people that are OK with driving a Corolla into the ground.

If everyone in the office park lot in your range has a Mercedes, you need one too. I know a guy with a Boxster and a 7 mile commute. You need AMG to break the clutter, or Bentley if everyone else has AMG.

If the other moms take junior on a school run and you see X5, X7, etc you too will need to ditch the minivan and go that way too.

Maybe this is just the Westchester, NY suburbs, but I see PLP as the driver selling most cars…..which gets us back to payments as others have stated.

None of these “problems” exist at the bottom of the chain. Can I make the payment and does it start…

Question for Steve or anyone: Is it still true what you wrote about the average American car being about 12 years old? I ask because I remember hearing/reading that we hit a new record for average age of car on the road (11 years +) a year or two ago, but I also know that new car sales have been quite strong for a year or more now.

So have strong new car sales (in the U.S.) moved that “age of average car” to a younger number?

My 04 Z with 170K miles feels better than my 93 Accord did at 92K miles at the same age. Cars have become robust to the point that it is detrimental to the auto manufacturers. If I can keep the shell strong, I can see this thing going to 500K with an engine swap or two.